Morocco to begin cutting subsidies in two weeks

Morocco will begin deregulating prices for some basic goods in the next two weeks, its first step towards reducing subsidies, its general affairs minister told Reuters.

Morocco will begin deregulating prices for some basic goods in the next two weeks, its first step towards reducing subsidies, its general affairs minister told Reuters.

The Islamist-led government has delayed reforms to subsidies and pensions recommended by the International Monetary Fund because of their political sensitivity.

"We will activate automatic price adjustment in the next two weeks - before Ramadan - for energy products and sugar, except cooking gas," the minister, Mohamed Najib Boulif said in an interview late on Thursday.

But he subsequently stressed the timing of the move had not been finalised.

His comments came a few days after an IMF team visited the North African kingdom to audit its public finances.

The shift will allow the government to cut spending on subsidies by 20 percent, to 42 billion dirhams ($5 billion) or less, the minister said. That is within the limit fixed by the 2013 budget, which is based on an oil price of $105.

Coming just before the start on July 10 of Ramadan, the Muslim fasting month that often involves heavy spending for millions of Moroccans, the move may be controversial.

"The adjustment will be in both directions. When (oil) prices are less than $105, that will let Moroccans consider that it is not necessarily a bad thing," Boulif said.

The minister said prices would not be fully liberalised, however, and that maximums would be set.

"(The figure) is not public yet, I can't say it," he said. "The government will help the process by price hedging to anticipate fluctuations of commodity prices in the international markets."

Last August, the IMF approved a $6.2 billion precautionary line of credit for Morocco over two years while urging reforms of its subsidy and pension systems.

Boulif said the move had been agreed by the coalition government, which a junior party had threatened to quit unless prime minister Abdelilah Benkirane moderated plans for sweeping cuts to subsidies on food and energy. Benkirane insists the reforms will go ahead.

"We have agreed the move," said Boulif, a member of the prime minister's islamist Justice and Development Party.

"For the structural reform of the subsidy fund, we expect to reach a compromise by the end of the year and we can put it out with the 2014 national budget.

"The government's global reform is technically ready, which contains direct aid for the poorest and some measures to help the middle classes."